Ormat Technologies Inc (ORA)

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Bush's spots and Ormat

05.2.06 | 13:32 By Yoram Gavison

At the end of last week, Ormat Technologies stock jumped 6.5%, lifting its market cap to $1.2 billion. What happened was that stocks guru James Cramer listed the Israeli company, a subsidiary of Tel Aviv-traded Ormat Industries (TASE: ORMT NYSE: ORA , among his stock picks.

Cramer says anybody believing oil will drop back toward $50 is in la-la-land, and the company with the most advanced alternative-energy technologies is Ormat with its geothermal solutions.

Since U.S. president George Bush admitted that the state of the union is to be addicted to oil (and something should really be done about that, said the ex-oilman), Ormat Technologies stock has risen 9.2%. In the last three months it has gained 87%. Yet the fuel driving the stock in recent weeks isn't Cramer, or the 9% hike in oil during that time.

Steam from the earth's bowels

Ormat Technologies handles all Ormat's business in building and operating geothermal power stations. The driver behind its stock is the growing recognition of the potential in renewable energy sources, such as wind, the sun, and geothermal power from the bowels of the earth. Soon, renewable energy won't be the realm of "tree-huggers", it is going main-stream. The latest convert is apparently none other than ex-oilman George Bush.

For years he had stymied the greens in almost every effort. He refused to sign the Kyoto pact and supporting drilling into pristine areas of Alaskan nature reserves, reinforcing the view that he'd never lose his affiliation with the oil industry. His words last week took the nation by shock.

He spoke of America's addiction to coil and the need to restrain energy prices, to preserve America's economic advantage over the challenge from China and India. Bush vowed to increase the budget for developing "clean" energy by 22%, and to proportionally increase America's use of non-polluting energies. He vowed to reduce America's dependence on imported oil and said that by 2025, America would replace 75% of the oil it imports from the Middle East.

He did not specifically mention the words "geothermal energy" but investors didn't need specifics. It is the most readily available and cheapest alternative, if we leave nuclear out of it.

Ormat CEO Judith "Dita" Bronicki, who is the controlling shareholder of Ormat Technologies believes Bush's evident conversion did impact Ormat stock, albeit indirectly. "In his speech, Bush strongly supported alternative energy," she explained. "Regarding Ormat specifically, I think the speech created a positive atmosphere ahead of talks on expending tax credits for green energy producers, beyond 2007."

She also believes Bush's speech will impel more states to adopt laws that require growing proportions of energy to be greenly produced. Twenty-one already have.

The Calpine effect

Another effect on Ormat's stock has been Calpine, a California energy company that has extensive geothermal resources. It's the second-biggest geothermal producer in the States and it's broke: it may well have to sell some geothermal assets.

Bronicki refuses to get drawn into the Calpine question, but analysts believe that even if it sells assets, it will take a year at least. Ormat hasn't made up its mind about Calpine assets yet, the analysts surmise, and it would be a big chunk to chew off. Calpine has estimated its assets as being worth $2.5 billion.

But market sources think Ormat's beady eye on Calpine's assets may be the reason it filed a massive billion-dollar shelf registration.

Bronicki begs to note the registration's term is three years and the company could be positioning itself for other opportunities.

One might be Ormat's negotiations with Sierra Nevada to build three more geothermal power stations, producing 15 to 30 megawatts at an investment of $90 million to $180 million. Bronicki says the negotiations with the power company are ongoing.

Another opportunity that Ormat noticed in Nevada is the geothermal field by the Navy air base at Fallon. Ormat signed a contract to buy the land from the Navy and develop the site, which apparently has capacity fro 100 MW. "At first we would build a station of 15-30 MW," Bronicki says. In her eyes, the importance of the deal is that the potential of Fallon has already been thoroughly gauged, which will shorten processes. And in the long run, she sees a nice long-term contract to supply more power to Nevada.

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